TipRanks Smart Growth Newsletter #2: Future Insulated
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Dear Investors,
Welcome to the second edition of our brand new TipRanks Smart Growth Newsletter.
Through the Smart Growth Newsletter, we aim to provide you with high-potential investment insights to support your growth strategy. Each week, our analysts will identify cutting-edge companies positioned to capture market share and deliver exceptional growth, giving you unique insights in a dynamic investing landscape.
Stocks we recommend have been carefully analyzed and vetted, using TipRanks data, ensuring you receive well-researched, high-potential opportunities aimed at delivering substantial, long-term growth. We will present you with a comprehensive analysis that outlines our selection process, giving you clear insights into why each stock stands out as a top growth opportunity.
With that in mind, let’s dive into this week’s top pick and explore why it could be a valuable addition to your Growth portfolio.
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This Week’s Top Growth Pick: Aspen Aerogels (ASPN)
Aspen Aerogels, Inc. is a materials technology company that designs, develops, and manufactures aerogel insulation products. These products are primarily used in energy infrastructure and sustainable insulation materials markets, including applications in electric vehicles and energy storage systems.
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Here’s Why ASPN’s Stock Is Likely to Grow:
❖ Innovative Leadership: Aspen Aerogels’ groundbreaking products, like PyroThin, position the company as a leader in thermal insulation for EV batteries and industrial applications.
❖ Explosive Growth: ASPN’s Thermal Barrier segment, its largest division, has grown at an astonishing 194% CAGR over the past two years.
❖ Strategic Partnerships: Collaborations with major players enhance Aspen’s market reach and credibility.
❖ Market Validation: Adoption of PyroThin by top-tier OEMs like GM, Porsche, and Mercedes-Benz demonstrates its critical role in mitigating EV battery risks and boosting safety.
❖ Expanding TAM: The aerogel market, valued at $1.4 billion in 2024, is projected to reach $7.5 billion by 2032, with Aspen uniquely positioned to capture a significant share.
❖ Scalable Capacity: Aspen’s manufacturing capacity and supply chain arrangements can support $650 million in revenue without significant new investments, signaling readiness for further demand surges.
❖ Operational Efficiency Gains: Gross margins and profitability continue to improve, driven by economies of scale, capacity utilization, and product mix optimization.
❖ Strong Financial Position: Conservative financial management keeps the debt-to-equity ratio below 10%, providing flexibility for aggressive growth while maintaining stability.
❖ Revenue Doubling Achievable: Aspen has nearly doubled revenues from 2021 to 2023 and is on track to double them once more by 2025.
❖ Analyst Optimism: Leading analysts rate ASPN a “Strong Buy,” with an average price target indicating a potential upside of 100%+, underscoring confidence in its growth trajectory.
Source: Company Website
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Key Aspects of ASPN’s Innovations
Aspen Aerogels specializes in advanced aerogel technology, offering innovative solutions across various industries with the primary focus on electric vehicles (EV), battery, industrial, construction, and energy markets. Aerogels are lightweight, porous materials known for their exceptional insulation properties, making them ideal for applications in energy efficiency, safety, and sustainability.
Its proprietary Aerogel Technology Platform – a proprietary process and suite of innovations designed to create high-performance aerogel materials – drives innovations like PyroThin, an amorphous silica-based barrier for EV batteries, mitigating thermal runaway and enhancing safety. PyroThin is widely adopted by major OEMs, including General Motors, Porsche, Toyota, Audi, Volkswagen, and Stellantis.
In addition, Aspen Aerogels has patented a carbon aerogel-silicon hybrid solution, which boosts lithium-ion battery energy density at low cost, showcasing the company’s focus on impactful, scalable solutions.
Other innovations include Pyrogel and Cryogel, high-performance insulators for industrial and cryogenic applications, and Spaceloft, a flexible, nanoporous insulation used in construction, aerospace, and outdoor gear. These products exemplify Aspen’s leadership in solving complex energy conservation challenges for a number of diverse applications.
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Collaborations and Market Leadership
Aspen Aerogels was the first company to successfully commercialize a technically and economically viable form of aerogel insulation. Now with over two decades of R&D investment, the company has solidified its leadership in aerogel technology, shaping the global market for these advanced materials.
Aspen’s competitive edge lies in an extensive IP portfolio of 300+ patents, which safeguard its innovations and market position. The company actively defends these rights, ensuring its technologies remain protected.
Strategic partnerships further strengthen Aspen’s market reach. Long-standing collaboration with GM integrates Aspen’s PyroThin barriers into GM’s Ultium battery platform. In 2024, partnerships expanded to Valmet Automotive for the Porsche 718 EV series and Mercedes-Benz, Aspen’s seventh EV OEM customer. This agreement has been reached under the umbrella of ACC, a long-term battery cell joint venture between Aspen and Stellantis, Saft, TotalEnergies and Mercedes-Benz. Aspen’s deals with major OEMs reinforce PyroThin‘s role in thermal runaway protection globally.
Aspen’s globally installed aerogel base exceeds $1 billion, showcasing its leadership in high-value sectors like EVs, construction, and energy. The aerogel market, valued at $1.4 billion in 2024, is projected to grow at a 17% CAGR through 2030, potentially reaching $7.5 billion by 2032. This growth reflects rising demand for energy-efficient solutions, where Aspen is well-positioned to capitalize.
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Segments of Business Success
Aspen Aerogels operates through two key segments: Energy Industrial and Thermal Barrier. The Energy Industrial segment, encompassing products like Pyrogel, Cryogel, and Spaceloft, targets energy efficiency and insulation needs in construction, oil and gas, and industrial sectors.
Meanwhile, the Thermal Barrier segment focuses on PyroThin, a customizable thermal barrier for EV batteries, introduced in 2021 to address thermal runaway challenges. PyroThin quickly caught on, with its rapid adoption underscoring the pivotal role it now plays in advancing electric vehicle technology.
In recent quarters, Aspen Aerogels has increasingly focused on the Thermal Barrier segment, particularly its PyroThin products for EV applications. Driven by surging demand, the segment’s revenues now comprise 72% of Aspen’s total, growing at a remarkable 194% (!) CAGR over the past two years. In contrast, the Energy Industrial segment has faced supply constraints, which have limited growth. However, a recent manufacturing turnaround aims to expand capacity and restore its contribution.
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Insulating Profitable Growth
Unlike many growth companies, Aspen Aerogels maintains a rock-solid balance sheet with a net debt-to-equity ratio under 10%, reflecting its disciplined financial management. Despite heavy investments in R&D and manufacturing capacity, Aspen balances growth with stability. In Q3 2024, the company took a $27.5 million one-time charge to redeem convertible notes, avoiding shareholder dilution and reinforcing long-term value.
Aspen’s revenues nearly doubled from 2021 to 2023, and it remains ahead of schedule to double again by 2025. Q3 2024 saw 93% YoY revenue growth, led by a 176% surge in its Thermal Barrier segment. Gross margins rose to 42% (up 19% YoY), and EBITDA margin reached 22%. Operating income improved by $32 million YoY, with free cash flow up 99% to $20.8 million.
Last quarter’s report included a net loss of $13 million, translating to an EPS of minus $0.17. This was an improvement over the same period of 2023 despite including the charge for convertible-note redemption. Without this charge, the company would have clocked a positive net income of $14.5 million, or a positive EPS of $0.37.
Following another blockbuster quarter, Aspen significantly raised its 2024 financial projections for the third time this year. The company now projects 2024 revenue growth of 88% and a positive EPS of $0.11, up from a $0.66 loss in 2023.
Looking ahead, the company expects revenue to continue growing in 2025, with capacity to support $650 million in annual revenue without major new investments. It targets gross margins of 35%+ and adjusted EBITDA margins of 25%, driven by economies of scale, improved efficiency, and an optimized product mix.
Source: Aspen Aerogels’ Q3 2024 Investor Presentation
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Moderate Price, Given Fast Growth
Aspen trades at significantly higher Forward P/E and Forward P/S ratios than its peers in the industry. The pricier valuation stems from the fact that ASPN is an innovative growth machine, while its material-producing peers have displayed low single-digit or even negative revenue growth trends over the past three years. Forward revenue growth estimates confirm Aspen’s unique growth status in its slow-moving Materials sector, as it is expected to increase its top line by 40-50% p.a. in the next couple of years, while its peers are slated to stagnate at best.
ASPN’s stock has risen by ~33% in the past year, outperforming the S&P 500 and most of its peers in the industry. However, it became significantly cheaper following the stock’s drop from its recent high point in August, leading to a notable discount versus its price history. Given that investors and analysts anticipate a significant future growth potential, its higher-than-average valuations may be well justified, while the current stock price appears to present an appealing entry point for long-term investors.
Aspen Aerogels holds a “Strong Buy” rating from TipRanks-scored leading Wall Street analysts, with an average price target suggesting potential upside of almost 109% within the next year.
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To Sum It All Up
Aspen Aerogels stands out as a compelling growth investment, driven by its leadership in innovative aerogel technology and rapid adoption across high-demand industries. The company’s proprietary technologies have enabled breakthroughs leading to critical solutions, recognized and incorporated by top-tier automakers. Its cutting-edge products have led to breakneck growth rates, which are expected to continue next year and beyond. Aspen’s strong financial management, including minimal leverage, supports its aggressive growth strategy.
Despite a higher valuation, Aspen’s robust R&D investments, strategic partnerships, and scaling efficiencies position it as a standout in the Materials sector. With Aspen poised to achieve record profitability and expand its market share in 2025, analysts see an exceptionally strong upside potential of over 100% in the next year. As such, Aspen Aerogels offers a compelling case for long-term growth-focused investors.
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Click here for more stock analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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